Tag Archives: #financialplanning

A Gift From The IRS…

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A Gift From The IRS…

Were you assessed Failure to File, Failure to Pay, or Estimated Tax Penalties, or Underpayment Interest by the IRS associated with the tax periods from January 20, 2020 through July 10, 2023?  If so, you may be eligible for a refund.

In a recent landmark court case, Kwong v. United States, the US Court of Federal Claims ruled that the Federal Disaster Declaration in effect during that period prohibited the IRS from levying those penalties and interest on taxpayers.

The IRS will not automatically send refunds.  You must file Form 843 by July 10, 2026 to protect your right to this refund.  You will need to obtain your tax transcript from the IRS to get the exact information needed to complete the form.  The transcript can be requested online at irs.gov. 

It is possible to complete this yourself, although your tax preparer may have an easier time of it.  It’s also important to note that the IRS has appealed this decision, so processing these forms will certainly be delayed and may never happen depending on what the appeals court rules.

You have your assignment and only two weeks to complete this by July 10th.  Get cracking.

The Bottom Line:  Don’t Miss The Deadline.

–Michael Ross, CFP®

Private Credit – On The Rocks

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Private Credit transactions are loans made to businesses and purchasers of them (often private equity corporations and funds) by non-bank lenders in the non-public market.  Many of the lenders are investment partnerships overseen and managed by Business Development Corporations that are funded by institutional and accredited investors.

The Private Credit market has grown from an estimated $300 billion 10 years ago to over $1.8 trillion today.  That means a large tranche of lending has moved from banks and the public debt markets to a relatively discreet and unregulated group.

Many of the Business Development Corporations like Blue Owl, Blackstone, Ares, and Apollo are public corporations which gives us a window into their Private Credit activities and results.  While the funds themselves are discreet entities, the BDC’s must disclose their interests in them, financial results, and other material information about them.

What we have learned is a large portion of their loans have been made in the software sector.  Many of the loans were to facilitate private equity firms buying out these software firms prior to the AI craze of the past few years.  Now these firms are under threat from AI.

AI is changing the economic landscape in many industries and one of those is software, especially SAAS.  While the regulatory and court battles over copyright and patent issues are yet to be fought and settled, for the time being that industry is taking it on the chin.  Public companies like Adobe and Salesforce clearly have real and perceived problems as indicated by their stock valuations. The world of private software companies financed by private credit is likely having similar issues.

This is confirmed by disclosures made by the Public BDC’s where we learned about enhanced redemption requests in the funds from their investors, often exceeding the contractual quarterly maximums.  The value of the stock of these BDC’s has been cut down, in many cases to 12 month lows.  In other words, some of this debt is distressed.

Most of you are not investors in these funds, so you might be asking how it might affect you.  There are three areas of note…

Defaults or repricing of debt in these funds will cause write downs by the investors in them.  Many of them are institutional investors like pension funds and life insurance companies.  Are you insured by one of those insurance companies?  Have you invested in a company whose pension fund may now have a shortfall that must be made up with additional contributions?  Time will tell.

Are you invested in the software sector in general?  Are any of these companies at high risk of being negatively affected by AI?  Many can’t miss software companies from 2022 no longer have water in their moat and the alligators have died.  Time to get out?

The bigger picture is it has been 17 years since the Great Financial Crisis, and we have not had a credit cycle since then.  Unlike the GFC which was triggered by fraud, if this triggers a credit issue it would be more like the 1989-92 version where the junk bond market dried up in the wake of the Drexel collapse and Milken prosecution contributing to a recession.  If that happens, are you prepared?  Do you have a plan or strategy?

The Bottom Line:  Where There Is Smoke There Is Usually Fire. 

–Michael Ross, CFP®

This Drawing Changed Everything For Me…

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Last week I wanted to comment on x.com in the wake of the Supreme Court Tariff Ruling.  I always try to add an image of some sort when I post.  In this case, I thought of something that would be eye catching.

Usually the images I select, whether on this blog, x.com or LinkedIn are photographic.  Historically, I have used stock photos and more recently I have tried image generation.  The generation was nothing very specific, just generic, which always seemed OK. 

For this one I had a drawing in my mind and decided to try “AI” image generation.  This is what I put in the description of my request”

“Create a cartoon image in caricature and landscape format. A train track running across the entire image. A steam engine on the left side stopped in the tracks, with “Trump Crazy Train” written on the boiler and Donald Trump wearing overalls and a red engineers cap saying “Make America Great Again” On the right side facing the train on the tracks are caricatures of the six justices in robes who voted against the tariffs and a caricature of the Supreme Court building across the tracks behind the justices with “Supreme Court” written on the building.”

A single paragraph and the image above is what I got.  It took about a minute.  It blew me away.  It was probably 90% of what I envisioned in my mind.  I probably could have further refined it, but in this case it wasn’t necessary.

It made me see AI in a whole new light.  It’s not just advanced computing with faster processing and more data.  It’s Revolutionary as opposed Evolutionary.  It’s game changing already.  In a way that even the dot com internet wasn’t.

Think about just this project.  It clearly doesn’t bode well for illustrators, cartoonists, the software that they use, or the companies and programmers that create and maintain that software.

I now see the world in a different light.  It will influence how I see the economy, investment opportunities for my clients, and how I run my business.  I’m smart and wise enough to realize there will be shakeouts and winners and losers on this journey, but the train has left the station.

The Bottom Line:  This Blew Me Away.

–Michael Ross, CFP®

Convert The Dip…

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Many of you may be familiar with the “Buy the Dip” strategy certain investors use.  It means that when a security or general market takes a dip in price, they use it as an opportunity to invest more money at a lower price – taking advantage of a temporary discount.  In other words, they see it as being on sale.

Deciding whether to convert a traditional IRA or 401(k) into a Roth is often a complex decision.  The decision process must consider current and future projected income, tax rates, deductions, tax preferences and other related programs such as student financial aid and Medicare costs.   Frequently, when a conversion strategy is developed for larger accounts, it will be executed over several years, to avoid moving into high tax brackets and loss of other preferences and benefits.

When a conversion is executed, it is usually done by transferring the current assets from the traditional account into the new Roth account, rather than liquidating the assets and transferring cash.  The income that is recognized is the value of the assets on the date of transfer.  The value being transferred is taxable to the account holder in the year the transfer is made.  Often, the plan will include transferring the assets with the highest short-term appreciation potential first to reduce the income recognized at transfer time.

Now let’s circle back to Buy the Dip.  Once a decision is made to convert a certain value of assets in a given tax year, it is a smart strategy to transfer those assets when their value is low.  That means more assets can be transferred with the Financial Plan’s dollar limit for that year.

Next time your favorite investment in your traditional IRA or 401(k) takes a dip, instead of just buying the dip, Convert the Dip.  When it recovers in price, the gain will be tax free forever.

The Bottom Line:  Convert That Dip.

–Michael Ross, CFP®

Back To School…

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Do you have a college student headed back to school, or going for the first time?  If so, this might apply to you.

Most people know that their aging parents should have a few documents as part of their Personal Financial Planning.  A Health Care Proxy, which allows someone to make medical decisions for them if they become incapacitated and they can’t.  A HIPAA Authorization, which would allow a medical practitioner to discuss their care with someone else.  A Durable Power of Attorney, which would allow someone else to handle financial and business affairs on their behalf if they are unable to, or wish someone else to do it on their behalf.

Aging parents often appoint one or more kids to do this so the powers are there in case they are needed or wanted.  What about College Students, or Young Adults?

You may not have thought about this, but when your child turned 18, you lost most of the legal power you held from the time they were born.  You no longer automatically have the power to make legal, financial or medical decisions on their behalf. 

Your child may be hundreds or thousands of miles from home.  While some of the aging parent fears, such as strokes, dementia, falls, etc. don’t apply much with young adults, things do happen.  We don’t want to think about it, college students sometimes get in serious accidents, or legal trouble.  When they do, they may not be in a position to make or execute decisions for themselves. 

Having these documents and the powers they grant to you can be priceless in a crisis situation, saving critical time or even avoiding a judge making a decision.

These documents are fairly standardized, and although they can vary from state to state, they can be modified and adapted to meet your needs.  If your child is attending school in another state, most states will accept documents properly executed in their home state, but you might want to inquire.

It’s a simple process to execute these.  Most attorneys will handle this for a nominal fee.  There are self- serve template documents as well, but a mistake could be a problem when you really need them.  Your child must agree to granting these powers to you. 

If you have a child on the fence, it might be helpful to let them know that they can rescind these powers at any time.  It’s also a good opportunity to push them further into the adult world.

The Bottom Line:  Welcome to the real world.

–Michael Ross, CFP®

Pop Goes The Power Supply…

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Every now and then, an infrequent purchase comes up.  This week a power supply on one of our desktop computers died with a big popping noise.  It’s an easy swap, 4 screws and a couple of snap connecters – a less than 10 minute process.  I ordered one at the end of the day and it arrived at lunchtime the next day.

The new one cost $31.99.  In my head that was considerably more than the last one we had purchased.  I was right.  The last time we purchased one, it was $24.99 in January 2019.  That’s an increase of 28% in 4.5 years.  The first two of those years were in a lower inflation period.  It works out to an average annual increase of 5.6% – likely much more since 2021 started.  This is a commodity item that hasn’t changed (same wattage, and certainly no new patents apply). 

Purchases like this make it clear that inflation is running hotter than the official statistics the government puts in front of us.  It seems clear that for the foreseeable future, we are going to have to adjust to the new normal.  This is a reminder to adjust inflation assumptions in your Financial Planning.

The Bottom Line:  Incorporate the real world in your Financial Planning.

–Michael Ross, CFP®

Beware A Banker Bearing Gifts…

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The other day, I got a glossy advertisement in the mail.  It was from a local bank that was offering me a “Premier Relationship.”  If I deposited $500K or more into a Premier Checking Account by May 21st, and kept the money there for at least 90 days, I would get a bonus of $3,500.

It sounds good so far.  They also promised waive a monthly $35 fee (which sounds steep to me), give me no ATM fees, and 24/7 phone support.  I read the fine print, got my pencil and a calculator out, and started working the numbers.

The actual interest on the account is 0.01% APY – yes you read that right.  The $3,500 bonus is only 0.7% simple interest if I kept the money there 90 days or more.  So on an annualized basis (assuming I could get future bonuses), the compounded interest rate would be under 3%.

For comparison, a 90 day T Bill will currently yield an annualized rate of over 5.3%, and that’s state income tax free (if you are in one of those states that imposes such a tax).  Amazingly, I bet there are people that are flocking to take advantage of this.  Don’t be one of them!

This is another great reason to have a competent Financial Planner who won’t let you make mistakes like this.

The Bottom Line:  This is an offer you can refuse. 

–Michael Ross, CFP®

There’s A New Fry Guy In Town…

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For quite some time, I have been pontificating two things – well, OK more than two things, but these two came together for me today. 

I believe that investing in non-publicly traded startup and early stage companies offers the potential for returns that can dwarf the returns one can reasonably expect by investing in public companies.  There are many reasons for this, but the reality is, by the time the company goes public, via an IPO, the new investors are buying out the earlier funders and founders.  In other words they are selling to you.  What does that tell you?  These investments come with a much higher risk – requiring much more homework and verification, and statistically the failure rate is higher.  It’s an arena where nobody (except maybe founders) should put all their eggs in one basket.  However, all it takes is one real home run and the duds are long forgotten. 

Besides the higher risk, there is an additional caveat.  Most people cannot legally invest in them.  According to the SEC, you must be “accredited”.   You don’t have to pass a test, just have a high level of income and/or assets.  In other words the rich get richer.

I have also been a fan of AI Robotics.  AI is promising us the moon.  Most of it on a practical basis is still a bunch of hype and truly useful applications to date are far and few between.  I guess if you have a HS term paper due tomorrow, it could be helpful.  The ability to produce smart robots is one of the areas that hold short term economic promise.  A robot that can efficiently do complex non repetitive tasks in a varying environment has real value.  Most of the companies developing and producing these are relative cottage industries.

Today I stumbled across a company called Nala Robotics.  I did some digging.  They are based in Illinois and make a series of fast food kitchen robots.  You can see for yourself here; www.nalarobotics.com  The videos on their site are really cool.  I could only find information on one round of funding for $1.9 million, although I suspect there must have been more than that.

It’s hard to cull information on small closely held companies without really digging.  Since, I am not doing this on behalf of a client, I did a quick search.  Pricing info was vague, but they offer one of their products “The Wingman”, a robotic fryolator for rent at $2,999 per month.  If you do the math, that’s less than what it would cost in salary, taxes, benefits, and workman’s comp for one month of a $15/hr. minimum wage fry guy being available for all the hours a location is open.  I would guess there are other efficiencies.  No sick days. The ability to react instantly to demand as food is being ordered.  It even automatically cleans itself.

It’s hard to tell if Nala will be the grand slam home run in this field.  I would guess the makers of these machines that get the order from McDonalds and the other biggies will go to the head of the class.  It does seem that we are on the precipice of an explosion in this genre and many other AI robots.

This is clearly happening.  Stay tuned.

The Bottom Line:  Rosie Meets Edison

Choice Is Great…

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A few years ago, I went to a social event at a friend’s house.  At the time he was employed in a tech sales position at one of the major tech firms.  I noticed all kinds of wires and devices connected to his TV in the living room. 

When I inquired he proceeded to tell me he had “cut the cord” from the cable company, and was able to replicate the service for a lower price.  He proceeded to show me, a digital antenna to get broadcast channels, a DVR to record programs, and some sort of router that made all of this available to all the TV’s throughout the house.

It all seemed so complex at the time, but he was one of those guys who could make it work and troubleshoot when necessary.  I do remember his savings were notable however.  It seemed cool, but at the time it was a tech mountain I wasn’t ready to climb.

Cutting the cord has become more of a thing in recent years.  Some of it was the young people who had no interest in linear TV, and were happy with Netflix and chill.  Others got tired of subsidizing hundreds of channels they mostly didn’t watch, especially expensive local and national sports channels which were must carry on basic cable and added notable cost to the monthly bill.  Who do you think pays for the multi-million dollar salaries of the players on the local NBA team?

In recent years I had watched the cost of my cable bill increase notably, probably a good 75 percent since the pandemic started.  Recently, the cable company instituted data caps on my internet service.  This meant I could buy up to a higher service level month in and month out, or pay an even higher penalty fee in months I pierced the cap.  Something had to give.

I started to dig.  First I found a few streaming services that were able to deliver the channels we most watched and the local ones (no antenna needed) on any TV in the house without the need for additional equipment rental, for a stunningly lower price.  That sounded great, but I looked into the cost of internet service only from the cable company and it seemed they had you. 

Or did they?  The old traditional phone company did not offer fiber optic service where I live.  Their DSL offering just won’t cut it in the 21st century.  I thought I was screwed.  But then I came across an ad for one of the cell phone carriers offering 5G service for the home.  I learned for that to work well, you need to be somewhat near the tower – 5G has limited range, and that tower can’t be oversubscribed.  They offered a free trial, so I took them up on it.  I ended up with great service and speed.

Now I have cut the cord.  I have everything I want for about half the price.  There is a lesson here.  Competition works for the consumer.  As long as we don’t allow monopolies, the invisible hand of economics works.

If you haven’t cut the cord, you might want to check it out.  Just don’t sign up for my tower.

The Bottom Line:  Believe in and take advantage of free markets.

–Michael Ross, CFP®

Just Give Me The Best Deal…

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Hotel entrance sign

When I relocated my business to Florida in 2014, I kept a small office in New York to service my NY clients.  Up until that point, I had never done much business travel – just a conference here and there.  Once I was based in Florida, there was a need for me to travel to New York from time to time to see clients located there.

I made it a point to book my hotel stays using Hotels.com.  They were easy to use and they offered a 10% rewards program.  For every 10 nights I booked, I got a rewards voucher for a free night at the average room cost for the 10 nights.  Over the years, I had accumulated 6 nights – I would imagine the value of the vouchers was over $1,000.  As a bonus the vouchers would be tax free.

When the pandemic hit, like most people I stopped traveling to New York.  With the rise in the acceptance of Zoom, I decided to close our New York office and meet with those clients via conference call. I would only travel up to in person meetings in the most necessary or critical situations.  As you might expect, my hotels.com bookings plummeted.

In the back of my mind, I always intended to use my 6 vouchers.  This week I decided to check on their value, and incorporate that into a potential family trip in March.  When I logged on, I learned the previous rewards program had been terminated and rolled into a new program with Expedia (a sister company) and some Airbnb clone they are associated with.  Much to my dismay, I had about $25 in the kitty.  I recall no notice of this change being sent out.  It’s important to remember that these companies don’t exist primarily to make their customers happy.  They exist to reward their shareholders.

It’s not worth getting angry.  I am sure buried in the fine print their lawyers had written rules that allowed them to do this.  The airlines are infamous for doing this also.  There is a lesson here…

Cash on the barrel!  Find the best deal and don’t worry about non vested rebates.  Under these circumstances I would have been better off using sites like Priceline and Hotwire and gotten a slightly better deal on the rooms I booked.  Going forward I will not make purchase decisions based on points, miles or vouchers.  Just give me the best deal.

The Bottom Line:  Learn From My Mistakes.

–Michael Ross, CFP®